Is the U.S. Housing Market at a Crossroads?
Homes reached record prices in early 2022 – so is the current market a housing recession or just a market correction?
Here are some extracts from an article Market at the Crossroads on the Florida Realtors website, with my comments and links to recent articles at the end.
Is there a housing slowdown?
There is widespread consensus that the housing market has experienced a drastic drop-off in activity since its pandemic-prompted heights.
The housing market is “not like the volatile stock market, always going up and down; the housing market moves at a different, slower pace. “The market simply could not, and was never expected to, grow at that pace indefinitely,” Neda Navab, president of brokerage operations at real estate company Compass said. “Whether this trend will continue long enough for the market to enter a true ‘recession,’ or if this is simply the start of an expected ‘correction’ to historic norms, still remains to be seen.”
The case for a housing correction
Navab said the demographic drivers of housing demand powered the market largely due to “a robust millennial generation” that she feels will drive it for years. “Well-qualified buyers that can afford to be patient and or can adjust their budgets may find more negotiating room and supply than they’ve had in years,” Navab said. “Sellers that are disciplined on their price should still expect plenty of attention on their listings.”
The case for a housing recession
Robert Dietz, the chief economist for the National Association of Home Builders, makes the case that the U.S. housing market is in a recession, citing eight straight months of declining homeowner sentiment.
The National Association of Realtors agrees. The organization informally defines a housing recession as six months of straight decline in home sales. NAR Chief Economist Lawrence Yun said sales in July fell by nearly 6% compared with the previous month, equating to almost 5 million units, marking the slowest sales pace since November 2015 – with the exception of a drop occurring at the start of the COVID-19 pandemic two years ago.
Additionally, NAR said home sales, including single-family homes, townhomes, condominiums, and co-ops, fell about 20% compared with July 2021, when the housing market was scorching.
On the verge of a collapse?
No, the housing market is not even close to the housing market crash during the 2008 Great Recession, experts agree. That’s in part because of new lending regulations resulting from the meltdown. Borrowers are in much better shape, with higher credit scores. And with home prices still up, homeowners have a record amount of equity.
During stock market booms, the conversation at social gatherings is often about the market and how well people are doing. In the last two years, the stock market has competed with the housing market for conversations among friends.
The basic economic principle guiding my life in so many ways is that of supply and demand. While economists today – but not when I studied economics at Oxford – focus on mathematical models, I stick to the basics: when demand exceeds supply, prices go up; when supply exceeds demand, prices go down.
Just look at energy prices following the Russian invasion of Ukraine. Initially, oil prices soared as supply was reduced while demand remained strong. But then demand adjusted – dropped – because of the higher price, and prices adjusted – fell – in response.
The housing market has been in chronic short supply for many years and prices have behaved in line with basic economic theory. “Irrational exuberance” is the term coined by former fed Chair Alan Greenspan to describe a period of unduly escalated asset values. Is that what we saw in the first few months of 2022, when buyers were paying, sight unseen, often for cash, seemingly irrational prices for properties?
I think so.
But that does not mean that prices are going to crash, because….. demand continues to run ahead of supply.
I use the term “aspirational” to describe pricing earlier this year. “I’d love to see my house for X”, and earlier this year X – or more – was achievable.
Even in markets dominated by cash buyers, the impact of much higher mortgage rates and a slowing economy has a ripple effect.
In summary, therefore, I believe what we are seeing is a correction from the excesses of earlier this year; a return to a more normal market.
And, as always, I give this advice: “If the house checks the important boxes for you, you can afford it, and are planning to own it for several years, then buy it.”
And the three most important considerations when buying a house are: 1. location; 2. flow – does the house work for your lifestyle; and 3 – condition.
Only 3 can be changed easily.
And these recent articles:
Economic and mortgage commentary
Recession? Yes, no, maybe….
Federal Reserve tries to rewrite history
Has Inflation Peaked?
Have Mortgage Rates peaked?
Are we already in a Recession?
Federal Reserve in Fantasyland: Implications for Housing Market
Time to Consider an Adjustable Rate Mortgage
How Marblehead’s 2022 Property Tax Rate is calculated
Essex County 2022 Property Tax Rates: Town by Town guide
Pre-Labor Day Inventory drops
Summer 2022 Market Review
August Inventory recovers to 2020 levels
Essex County Mid-Year Market Summary in 5 slides
Massachusetts Mid-Year Market Summary in 5 slides
How quickly are houses selling?
Have Home Sales slowed?
June Housing Inventory: still way below 2020 levels.
If you – or somebody you know – are considering buying or selling a home and have questions about the market and/or current home prices, please contact me on 617.834.8205 or email@example.com.
Andrew Oliver, M.B.E.,M.B.A.
Market Analyst | Team Harborside | teamharborside.com
“If you’re interested in Marblehead, you have to visit the blog of Mr. Andrew Oliver, author and curator of OliverReportsMA.com. He’s assembled the most comprehensive analysis of Essex County we know of with market data and trends going back decades. It’s a great starting point for those looking in the towns of Marblehead, Salem, Beverly, Lynn and Swampscott.”
Andrew Oliver, M.B.E., M.B.A.
Real Estate Advisor
800 Laurel Oak Drive, Suite 400, Naples, FL 34108